Before investing in cryptocurrency mining, investors encounter various questions, such as selecting the appropriate mining approach, choosing, installing, and configuring equipment. One of the most critical choices for novice miners is determining the optimal network operation method: solo mining or pool mining. However, this decision is more intricate than it initially appears.
From thus article you will learn:
- Solo mining offers full rewards but comes with high risk and unpredictable earnings due to low block-finding probabilities.
- Mining in pools provides a stable income stream, albeit with reduced individual payouts, offering a more reliable option for miners.
- Direct investment in crypto assets may prove more profitable than mining, particularly if returns exceed mining expenses.
Solo Mining
Solo mining involves a single miner independently receiving tasks from the network to find a block and using only their equipment to solve it. In this method, the miner solely receives rewards for the found block and transaction fees. However, payments are possible only after finding a valid block and its confirmation by the network.
Solo mining attracts crypto investors due to its potential rewards. For example, a miner successfully finding a Bitcoin block receives 6.25 BTC, which, as of late September 2023, is approximately $165,000. This substantial sum motivates enthusiasts, with occasional reports of such achievements.
However, the success rate in solo mining heavily depends on the miner’s hash rate compared to the total network hash rate. Experts suggest that consistent block discovery requires a miner to possess at least 1% of the network’s hash rate. Given the current network hash rate, this translates to equipment with a performance of around 4 Eh/s, equivalent to a farm of 38,000 AntMiner S19j devices. The equipment cost alone for such a farm is approximately 5.3 billion rubles, and its power consumption reaches 123 MW/h, enough to power nearly 40 km of Moscow metro lines. Despite this investment, even such equipment only ensures a 95% chance of finding a block every two days.
In addition to purchasing equipment, solo miners must:
- Set up a full network node (for Bitcoin, the database alone occupies about 500 GB).
- Ensure continuous synchronization with the network.
- Configure the node for mining.
- Adjust the equipment for mining on their node.
These tasks require relevant experience and knowledge, with the latter often being more crucial. Notably, over 80% of experienced miners cannot handle these tasks independently.
In summary, solo mining offers the advantage of receiving complete block rewards and transactions. However, it comes with several drawbacks:
- Low probability of finding a block, which can be improved by increasing equipment performance, but at exorbitant costs.
- High knowledge requirements for node and equipment setup.
- Uncertainty regarding the time to find a block, with ongoing equipment maintenance costs incurred regularly until a block is found and no guarantee of ever finding one, regardless of equipment performance.
Pool Mining
Unlike solo mining, pool mining involves a collective effort of participants to solve the task of finding a valid block. By combining the computing power of all participants, the probability of solving the task increases significantly. In this approach, the pool receives the reward as a whole and then distributes it proportionally based on each participant’s contribution. Therefore, it doesn’t matter whose equipment found the required share; the owner still receives rewards based on collective efforts.
The main advantage of pool mining is the stable income it provides from equipment usage. For instance, if a solo miner fails to find a block within a month, they must cover equipment maintenance, servicing, cooling, and power costs entirely from their own funds. In contrast, in a mining pool, the received reward would be sufficient to cover current expenses and partially compensate for the equipment’s cost (as of September 2023, for Bitcoin mining, this compensation can range from 1/6 to 1/12, depending on the selected pool, electricity tariffs, and other expenses). Once the equipment is paid off, mining in a pool would yield pure profit.
Another advantage of pool mining lies in the transaction fee size. Large pools process a significantly higher number of transactions compared to small pools or solo miners, which substantially increases the share of transaction fee earnings for participants. Additionally, pools often operate qualified customer support services, and community members can exchange experiences and knowledge, ensuring that any technical questions or miner issues are resolved promptly.
However, the main drawback of pool mining is the lower rewards for participants. Despite the impressive total hash rate, finding a block by the pool is also not guaranteed. In cases where the pool fails to find a block, all its payments to miners result in direct losses. To compensate for these losses, pools charge a commission ranging from 0.5% to 4%.
It’s worth noting that not all pools operate honestly and pay rewards to participants. To avoid falling victim to scams and mining in vain, it is essential to thoroughly check the pool’s reputation before connecting.
Some pools also have specific equipment requirements, typically related to its performance. The pool specifies the minimum hash rate at which it accepts connections. This is due to increased costs when operating low-performance devices, which are not always covered by commissions.
In summary, mining cryptocurrencies in a pool is a more rational approach where profitability does not depend solely on luck. However, there are still many enthusiasts of solo mining aiming for a quick and substantial reward.
What Can You Mine Solo?
The probability of calculating a valid block for a solo miner is inversely proportional to the ratio of their equipment’s hash rate to the cryptocurrency network’s hash rate. For instance, even with multiple high-performance ASICs, solo mining on the Bitcoin network becomes akin to a lottery with negligible chances of success.
Nonetheless, there are still alternatives for individuals who prefer not to share rewards. While renowned cryptocurrencies like Bitcoin and popular altcoins should be disregarded, there are thousands of cryptocurrencies that can be mined solo and still yield substantial income.
These opportunities lie in coins with low market capitalization that have yet to gain widespread attention from crypto enthusiasts or new digital assets utilizing the Proof-of-Work (PoW) algorithm. However, thorough research of the chosen cryptocurrency is crucial before commencing mining.
The fundamental criterion is that mining revenue should cover expenses and generate net profit. In such cases, a solo miner can opt to mine:
- Coins with good liquidity that can be readily traded on centralized or decentralized exchanges. However, as liquidity increases, so does the network’s hash rate in which it is mined. Consequently, assets with high liquidity and low overall hash rate are scarce.
- Promising coins. Mining such cryptocurrencies may require accumulating mined coins in anticipation of a significant price increase. This is only feasible with cryptocurrencies that possess inherent value. Regrettably, such projects are also uncommon. Less than 10% endure beyond the first year, and even fewer attain stability and demand over extended periods.
Thus, in these scenarios, solo miners face a choice between waiting for their virtual income to materialize into tangible gains or adopting a more rational approach by curbing their greed and joining a substantial mining pool with steady payouts.
Nevertheless, an alternative option exists. Rather than investing in mining equipment and addressing associated tasks, solo miners can directly invest in crypto assets. Simple calculations reveal that earning a mere 1% of the invested amount daily is 1.5 to 2 times more lucrative than mining any cryptocurrency.